SEC News Digest

Issue 2012-20 January 31, 2012

Commission announcements

Securities and Exchange Commission Suspends Trading in the Securities of Three Issuers For Failure to Make Required Periodic Filings

The U.S. Securities and Exchange Commission announced the temporary suspension of trading in the securities of the following issuers, commencing at 9:30 a.m. EST on January 31, 2012 and terminating at 11:59 p.m. EST on February 13, 2012.

Thermo Tech Technologies Inc. (TTRIF)

T.V.G. Technologies Ltd. (TVGTF)

Visual Frontier, Inc. (VFTR)

The Commission temporarily suspended trading in the securities of these three issuers due to a lack of current and accurate information about the companies because they have not filed periodic reports with the Commission in over two years. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act).

The Commission cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by these companies.

Brokers and dealers should be alert to the fact that, pursuant to Exchange Act Rule 15c2-11, at the termination of the trading suspensions, no quotation may be entered relating to the securities of the subject companies unless and until the broker or dealer has strictly complied with all of the provisions of the rule. If any broker or dealer is uncertain as to what is required by the rule, it should refrain from entering quotations relating to the securities of these companies that have been subject to a trading suspension until such time as it has familiarized itself with the rule and is certain that all of its provisions have been met. Any broker or dealer with questions regarding the rule should contact the staff of the Securities and Exchange Commission in Washington, DC at (202) 551-5720. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.

If any broker, dealer or other person has any information which may relate to this matter, they should immediately communicate it to the Delinquent Filings Group of the Division of Enforcement at (202) 551-5466, or by e-mail at DelinquentFilings@sec.gov. (Rel. 34-66280)

SEC Charges Brothers With Short Selling Violations

The Securities and Exchange Commission today charged two brothers living in Chicago and New York with naked short selling for failing to locate and deliver shares involved in short sales to broker-dealers.

Short sellers sell borrowed shares in hopes of profiting from declining prices. While short selling is legal, SEC rules require short sellers to locate shares to borrow before selling them short, and they must deliver the borrowed securities by a specified date. Market makers are excepted from the locate requirement when selling short in connection with bona-fide market making activities in the security for which the exception is claimed. Naked short selling occurs without having borrowed the securities to make delivery.

According to the SEC’s order instituting administrative proceedings against Jeffrey A. Wolfson and Robert A. Wolfson, they generated more than $17 million in ill-gotten gains from naked short selling transactions involving such stocks as Chipotle Mexican Grill Inc., Fairfax Financial Holdings Ltd., Novastar Financial Inc., and NYSE Group. As Jeffrey Wolfson stated in a recorded telephone conversation, “What I sell them is not guaranteed, it never gets delivered, it’s funny paper.”

The SEC’s Division of Enforcement alleges that Jeffrey Wolfson engaged in illegal naked short sales while working as a broker-dealer himself and later as the principal trader at a Chicago-based broker-dealer that is no longer in business. He also taught his brother and others how to do it. Robert Wolfson conducted illegal naked short sales while trading through an account at New York-based broker-dealer Golden Anchor Trading II LLC, which also has been charged in the SEC’s enforcement action. The firm has changed its name to Barabino Trading LLC.

“By engaging in naked short selling, the Wolfsons had a major advantage over competitors who complied with the law and incurred the costs associated with actually borrowing the securities,” said George S. Canellos, Director of the SEC’s New York Regional Office. “The SEC is committed to recovering substantial ill-gotten proceeds made by traders who seek to circumvent important short selling regulations.”

According to the SEC’s order, the Wolfsons engaged in two types of transactions from July 2006 to July 2007 in violation of Regulation SHO. The first type of transaction – a “reverse conversion” or “reversal” – involves selling stock short and simultaneously selling a put option and buying a call option on the stock. The Wolfsons did not locate the stock before the sale, nor did they deliver the shares when sold or make a bona fide purchase of the stock when required to close out their resulting fail-to-deliver position. They were not entitled to the market maker exception to Regulation SHO because the short sales were not made in connection with bona-fide market making activities.

The SEC’s order states that the second type of transaction was a stock and option combination that created the illusion that the party subject to a close-out obligation had satisfied that obligation by buying the same kind and quantity of securities it had sold short. However, the stock was always sold back either the next day or within several days, and the Wolfsons knew or had reason to know that the shares ostensibly purchased in these sham transactions would never be delivered because they were purchased from another naked short seller who did not have the stock either. The Wolfsons entered into a significant number of these sham “reset” transactions with each other and also took the other side of the “reset” trades done by each other as well those done by other market participants.

The SEC’s Division of Enforcement alleges that by engaging in the misconduct described in the order, Jeffrey Wolfson willfully violated and willfully aided and abetted and caused BMR’s violations of Rule 203(b)(1) of Regulation SHO, and willfully violated and willfully aided and abetted and caused others’ violations of Rule 203(b)(3) of Regulation SHO. It further alleges that Golden Anchor willfully violated, and Robert Wolfson willfully aided and abetted and caused Golden Anchor’s violations of Rules 203(b)(1) and 203(b)(3) of Regulation SHO. The administrative proceedings will determine what relief, if any, is in the public interest against Jeffrey Wolfson, Robert Wolfson and Golden Anchor, including disgorgement of ill-gotten gains, prejudgment interest, financial penalties, a censure or a suspension or bar from association with any broker-dealer.

The SEC’s investigation was conducted by Steven Rawlings, Peter Altenbach, Daniel Marcus and Layla Mayer and the litigation effort will be led by Kevin McGrath. They work in the New York Regional Office. The SEC’s investigation into violations of Regulation SHO is continuing.

The SEC acknowledges the assistance of the Chicago Board Options Exchange and the Financial Industry Regulatory Authority in this matter. (Press Rel. 2012-22)

ENFORCEMENT PROCEEDINGS

Commission Orders Hearings on Registration Suspension or Revocation Against Three Companies for Failure to Make Required Periodic Filings

In conjunction with these trading suspensions, the Commission today also instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of three companies for failure to make required periodic filings with the Commission:

Thermo Tech Technologies Inc. (TTRIF)

T.V.G. Technologies Ltd. (TVGTF)

Visual Frontier, Inc. (VFTR)

In this Order, the Division of Enforcement (Division) alleges that the respective Respondents are delinquent in their required periodic filings with the Commission.

In these proceedings, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the Respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceedings will then determine whether the registrations pursuant to Exchange Act Section 12 of each class of the securities of these Respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in the proceedings issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-66281; File No. 3-14725)

Former Gateway CEO and Controller Settle SEC Fraud Action

On January 25, 2012, final judgments were entered against Jeffrey Weitzen, former CEO of Gateway, Inc., and Robert D. Manza, former controller of Gateway. Weitzen and Manza consented to entry of the final judgments without admitting or denying the allegations made by the Securities and Exchange Commission that they engaged in fraud and other violations of the federal securities laws in connection with Gateway’s recognition of revenue in the third quarter of 2000.

The SEC alleged that the defendants falsely represented Gateway’s financial condition in the third quarter of 2000 in order to meet financial analysts’ earnings and revenue expectations. Among other transactions, the SEC alleged that the defendants caused Gateway to record $47.2 million in revenue from a one-time sale of fixed assets to Gateway’s third-party information technology services provider in violation of Generally Accepted Accounting Principles (GAAP), and that Manza and defendant John J. Todd, then Gateway’s CFO, caused Gateway to recognize an additional $21 million in revenue from an incomplete sale of computers to a second entity, also in violation of GAAP. The SEC alleged that absent either of these transactions, Gateway would not have met analysts’ expectations with regard to its third quarter revenue.

Weitzen consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and payment of a $110,000 civil penalty. Manza consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) and Rule 10b-5 thereunder, and from violations of SEC Rule 13b2-2, which prohibits making misrepresentations and omissions of material fact to company auditors, as well as from aiding and abetting the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Manza further consented to be barred for five years from acting as an officer or director of a public company, and to pay disgorgement of $85,150, constituting his salary and bonus for the relevant quarter, together with prejudgment interest thereon of $75,551.43 totaling $160,701.43, and a $110,000 penalty.

Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Manza and defendant Todd liable for fraud, making false representations to auditors, aiding and abetting issuer reporting violations and other violations following a three week trial. On May 30, 2007, the Honorable Roger T. Benitez overturned the jury verdict as to the fraud and certain other claims. The SEC appealed that ruling, as well as the District Court’s prior August 1, 2006, grant of summary judgment to Weitzen dismissing the SEC’s case as to Weitzen. On June 23, 2011, the Ninth Circuit reversed those rulings and remanded the matter to the District Court.

The Securities and Exchange Commission (Commission) announced today that on January 27, 2012, Florida resident Juan Carlos Horna Napolitano was sentenced by United States District Judge Stefan R. Underhill in Bridgeport, Connecticut to 14 months imprisonment, followed by two years supervised release, for his role in conspiring to obstruct a Commission investigation relating to Francisco Illarramendi, a Connecticut hedge fund advisor. Horna Napolitano was also ordered to forfeit $935,000.

Judge Underhill had previously sentenced a Venezuelan accountant, Juan Carlos Guillen Zerpa, for his role in the conspiracy to obstruct the Commission’s investigation. On December 14, 2011, Guillen Zerpa was sentenced to 14 months imprisonment, followed by two years supervised release and ordered to pay a $10,000 fine and to forfeit $315,000.

Separately, on December 15, 2011, the Commission issued an Order suspending Guillen Zerpa forthwith from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice. Guillen Zerpa has been licensed as a certified public accountant in the Bolivarian Republic of Venezuela since 1989.

In January 2011, the SEC charged Illarramendi with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. On March 7, 2011, Illarramendi pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC. He is awaiting sentencing. On August 3, 2011, the Commission issued an Order by consent barring Illarramendi from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

The Securities and Exchange Commission announced today that on January 30, 2012 the Honorable Richard M. Berman of the United States District Court for the Southern District of New York entered a final judgment against defendants Christopher T. Vulliez and Amphor Advisors, LLC. The final judgment imposes a permanent injunction against future violations of the antifraud provisions of the federal securities laws and orders defendants to pay disgorgement.

The Commission’s Complaint alleged that, between March 2010 and January 2011, Vulliez and Amphor misappropriated at least $700,000 from his closest family and friends. According to the complaint, Vulliez made false and misleading statements to his clients that he would invest their funds in a biotech company. Instead, he and Amphor misappropriated the funds. The Complaint charged Vulliez and Amphor with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.

The final judgment permanently enjoins defendants Vulliez and Amphor from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. In addition, the final judgment orders defendants to pay disgorgement, on a joint and several basis, of $820,500. Defendants consented to the entry of the final judgment.

In a related criminal action, on December 7, 2011, Vulliez pled guilty to, inter alia, one count of Scheme to Defraud in the First Degree in violation of Penal Law §190.65(1)(b) and ten counts of Securities Fraud in violation of General Business Law § 352-C(6), before the Supreme Court of the State of New York for the County of New York in The People of the State of New York v. Christopher T. Vulliez, Superior Court Information No. 5556/2011, Docket No. 2011NY087021. Pursuant to a plea agreement, Vulliez will receive a sentence of six months incarceration followed by five years of probation and be ordered to pay restitution in the amount of $2,176,755.48.

Earlier, on August 20, 2011, the Commission filed an Amended Complaint to name Sophie Pachella and EatStrong, LLC as relief defendants. The Amended Complaint alleged that Vulliez diverted a portion of the investor funds that he had misappropriated to EatStrong and Pachella. On August 31, 2011, Judge Berman entered a final judgment that ordered EatStrong and Pachella to pay disgorgement, on a joint and several basis, of $375,000. EatStrong and Pachella consented to the entry of the final judgment.

INVESTMENT COMPANY ACT RELEASES

Notice of Applications for Deregistration under the Investment Company Act of 1940

For the month of January 2012, a notice has been issued giving interested persons until February 21, 2012, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act of 1940 declaring that the applicant has ceased to be an investment company:

Northwestern Mutual Series Fund, Inc. and Mason Street Advisors, LLC

A notice has been issued giving interested persons until February 24, 2012 to request a hearing on an application filed by Northwestern Mutual Series Fund, Inc. and Mason Street Advisors, LLC for an order under Section 6(c) of the Investment Company Act of 1940 (Act) for an exemption from Rule 12d1-2(a) under the Act. The order would permit open-end management investment companies relying on Rule 12d1-2 under the Act to invest in certain financial instruments. (Rel. IC-29939 - January 30)

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by NASDAQ OMX BX, Inc. to amend the definition of theoretical price (SR-BX-2012-006) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66245)

A proposed rule change filed by Financial Industry Regulatory Authority, Inc. (SR-FINRA-2012-006) to extend the effective date of the trading pause pilot has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66270)

A proposed rule change filed by International Securities Exchange, LLC (SR-ISE-2012-05) to extend the pilot program relating to individual securities circuit breakers has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66271)

A proposed rule change filed by Chicago Stock Exchange, Inc. (SR-CHX-2012-03) to extend the pilot program relating to individual securities circuit breakers has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66272)

A proposed rule change submitted by BATS Exchange, Inc. (SR-BATS-2012-003) related to fees for use of BATS Exchange, Inc. has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66273)

A proposed rule change filed by the Chicago Board Options Exchange, Incorporated (SR-CBOE-2012-010) to amend the Fees Schedule has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66274)

A proposed rule change filed by The NASDAQ Stock Market LLC (SR-NASDAQ-2012-019) to extend the pilot period of Rule 4753(c) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66275)

A proposed rule change filed by the Chicago Board Options Exchange, Incorporated (SR-CBOE-2012-008) to amend the Fees Schedule has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66277)

Approval of Proposed Rule Change

The Commission granted approval of a proposed rule change submitted by the Financial Industry Regulatory Authority (SR-FINRA-2011-071), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, to increase FINRA’s Trading Activity Fee rate for transactions in covered equity securities. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66276)

Accelerated Approval of Proposed Rule Change

The Commission issued notice of filing of Amendment No. 1 and granted accelerated approval of a proposed rule change, as modified by Amendment No. 1 (SR-BX-2011-046), submitted by NASDAQ OMX BX, Inc. pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, to amend the BOX Fee Schedule with respect to credits and fees for transactions in the BOX Price Improvement Period. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66278)

Proposed Rule Changes

The Commission has approved a proposed rule change (SR-FINRA-2011-059), filed by the Financial Industry Regulatory Authority, Inc., to adopt FINRA Rule 3230 (Telemarketing) in the FINRA Consolidated Rulebook. Publication is expected in the Federal Register during the week of January 30. (Rel. 34-66279)

SECURITIES ACT REGISTRATIONS

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.